Performance Contracting

Energy Services Performance Contracting

Since early 2017, NCBPA and its members companies have been leading efforts to extend energy and water savings goals in public buildings (including state agencies and institutions) that were successfully met in 2015. Ready more about NCBPA’s work in crafting 2019’s HB330 and how our members are the leading voices in extending this important legislation!

Looking for case studies? Click here or scroll down for more information.

At a ceremony at Sandy Grove Elementary, Hoke Superintendent Freddie Williamson said the performance contract method was the only way the low-wealth school system could finance needed work without increasing taxes or debt. He said it also allowed the school system to pursue its goals of having comfortable classrooms that are conducive to learning along with 21st century energy efficiency.

Overview

Energy Services Performance Contracting (ESPC or performance contracting) is a funding method of using guaranteed energy savings to implement facility improvements, equipment upgrades and energy efficiency techniques. Municipal and state governments cope with tight budgets and pressure from citizens to keep taxes low. Schools, colleges and universities confront expanding enrollment and demands to improve academics. In each situation, facility managers and owners are often forced to defer maintenance and equipment upgrades in order to control costs. Performance contracting is an alternative project delivery method available to alleviate additional costs and help finance a project.

Since 2017, NCBPA has been leading efforts to extend North Carolina’s energy and water savings goals in public buildings (including state agencies and institutions) that were successfully met in 2015. To do this, the association has prioritized lobbying work to enable House Bill 330 “Efficient Government Buildings & Savings Act” of 2019 with primary sponsors Rep. John Szoka (R-45), Rep. Dean Arp (R-69), Rep. Stephen Ross (R-63) and Rep. Chris Humphrey (R-12). Filed in March of 2019, the legislation seeks to avoid nearly $1.1 Billion in utility costs between 2018 and 2025 and net North Carolina taxpayers $252 Million in savings by establishing new energy and water conservation goals for public buildings of 40% and 30%, respectively. The prior goals of 30% and 20% by 2015 resulted in more than $1.4 Billion in taxpayer savings since 2003 through roughly $60 Million of state funding.

“If North Carolina were to fully act on the policy, utility and workforce development opportunities available through our industry, the state would save $13.9 Billion in energy over the next ten years,” said Aaron Hope of Southern Energy Management. “With those energy savings, people would also be healthier, businesses would see increased productivity, we’d have healthier school environments for our children and there would be vast economic and environmental benefits as well,” said Hope.

“Siemens was able to identify, and guarantee, energy savings with the equivalent value of more than $4 million that allowed us to finance nearly $3 million in capital equipment and improvements to the Coliseum Complex infrastructure.”

Status: The bill passed the House 111-2 on April 3, 2019 but has remained in Senate Rules ever since due to opposition from Sen. Paul Newton (R-36). The bill did pass the crossover threshold during the 2019 session. Heading into the 2020 short legislative session that begins on April 28, 2020, NCBPA is again leading efforts with its members to advance the bill through the Senate.

Why should you support this legislation?

The bill will put our industry to work on nearly $800 million worth of construction projects that net taxpayers $252 million in energy and water savings. Whether your company receives work through this bill or you as an individual will benefit from the tax savings, you can speak out in support of it. Click here to read more about the bill including comments from NCBPA’s CEO and Principal Lobbyist Ryan Miller. NCBPA is the lead organization working to enable this bill and needs your support to successfully advance it through the Senate.

What does the bill do?

The “Efficient Government Buildings & Savings Act” of 2019 establishes new energy and water savings goals for public buildings that will avoid nearly $1.1 Billion dollars of North Carolina taxpayer funded energy and water utility bills between 2018 and 2025, resulting in a net savings of roughly $252 Million (NCDEQ, 2019). Through North Carolina’s current Utility Savings Initiative (USI) program, State agencies and institutions have saved North Carolina taxpayers more than $1.4 Billion in utility costs since 2003 by improving the energy and water efficiency of state-owned buildings.

A majority of State agencies and institutions have participated in the program to lower their energy usage, improve how their buildings perform and contribute taxpayer savings to the State budget. Additional benefits of this program include improved health and safety for North Carolina citizens living and working in these buildings, improved productivity through more functional buildings and more efficient and less costly operations through reduced maintenance and upkeep. Additional benefits include:

Allowing private contractors to continue delivering guaranteed energy savings projects to State agencies and institutions that are unable to perform or finance the projects on their own.

Adding low-cost and high-return energy conservation measures to the approved measure list, including air sealing, duct sealing and building energy analytics systems.

Encouraging State agencies and institutions to participate in no-cost energy assessments that can lead to guaranteed energy savings for needed retrofits and energy improvement projects.

Changes to existing legislation that enables this program includes:

Increasing the energy consumption per gross square foot reduction requirement from 30% by 2015 to 40% by 2025 based on energy consumption for the 2002-2003 fiscal year.

Increasing the energy consumption reduction target for major facility construction projects of public agencies from 30% to 40% when compared to the ASHRAE 90.1-2004 standard.

Increasing the energy consumption reduction target for major facility renovation projects of public agencies from 20% to 30% when compared to the ASHRAE 90.1-2004 standard.

Increasing the water consumption reduction target for major facility construction or renovation projects of public agencies from 20% to 30% when compared to the 2006 North Carolina State Building Code.

The addition of air sealing, duct sealing and building energy analytics as approved energy conservation measures.

Requires each State agency and State institution of higher learning to conduct a preliminary analysis of implementing energy conservation measures by May 31, 2020, for all buildings greater than 20,000 square feet in size and that have been in use for more than 10 years.

Requires each State agency and State institution to implement energy conservation measures when findings of the preliminary analysis support the practical and economic feasibility of doing so.

Allows each State agency and State institution to implement the energy conservation measures on their own and within their own budget or by entering into a guaranteed energy savings contract.

If the State agency or State institution chooses to issue a request for proposal for a guaranteed energy savings contract for one or more buildings, they must issue the request for proposal no later than December 31, 2020.

What are the financial impacts?

NCDEQ estimates that increasing the energy reduction targets from the current level of 28% BTU per gross square foot to 40% will require $791,976,393 million in investment and will result in avoided energy costs of $1,044,192,089, creating a net avoided cost energy savings of $252,215,696 between 2018 and 2025 (NCDEQ, 2019).

The new goals encourage State agencies and institutions to perform energy and water saving projects for the first time or as additional projects on more than 1,250 state buildings spanning more than 83 Million square feet. Hundreds of public university buildings and nearly 100 buildings in the Division of Prisons are included.

In 2016-17, state agencies and universities collectively reached 30% in Btus per square foot. In 2017-18, the percentage declined slightly to 28%. Additionally, the 2017 State Construction Office Facilities Condition Assessment Program report identified $2.6 Billion in building and infrastructure deficiencies and deferred maintenance needs. The US General Services Administration estimates that about 40% of its maintenance and capital needs are energy-related, which in comparison could yield roughly $1 Billion worth of EPSC projects (similar to the costs/benefits found in HB330).

Case Studies

North Carolina Museum of Art (Trane Technologies): $500,000 per year in energy savings (58% reduction). The North Carolina Museum of Art underwent a performance contract under ESCO Trane Comfort Solutions. Following the recommendations of the General Survey, and an additional survey by an independent engineer, the Museum established performance targets to follow for the Performance Contract. Required Standards for Mechanical Systems (HVAC) necessary to ensure the Long-Term Preservation of the Art Collections of the NCMA.

University of North Carolina at Wilmington: $873,000 per year in energy savings (42%)

NC State University (Schneider Electric): $1.6 Million per year in energy savings, resulting in an 11-year payback. North Carolina State University turned to Schneider Electric to provide a campus-wide solution to improve energy efficiency and drive sustainable, clean energy projects in 1.6 million square feet of building space across 13 campus facilities. The comprehensive solution developed includes new or enhanced direct digital controls, improved lighting controls with occupancy sensors, improvements to the heating and cooling systems and a solar thermal heating system for domestic water and swimming pools.

Central Piedmont Community College (Trane Technologies): nearly $800,000 energy savings exceeded the savings guarantee by 11 percent in year one and 19 percent in year two. As Central Piedmont Community College (CPCC) in Charlotte, North Carolina continued to increase its enrollment and expand its campuses, the school sought to upgrade its infrastructure to ensure an optimal learning environment for students. Challenged by budget constraints, the college also wanted to reduce energy and operational costs to improve building performance, while implementing conservation measures in alignment with its sustainability goals.

Brunswick County Schools (Schneider Electric): $942,087 guaranteed annual energy and water savings. Brunswick County Schools maintains over 2 million square feet of facilities for their students. Twelve sites still heated their buildings with fuel oil, an expensive and messy energy source. Schneider Electric converted all of these schools to either natural gas or propane, in order to eliminate their use of fuel oil. Converting to natural gas or propane also gave Brunswick County Schools the opportunity to get various new heating system upgrades and refurbishments.

Kannapolis City Schools (Trane Technologies): $301,260 guaranteed annual energy and water savings. Guaranteed Energy Savings Performance Contract enabled this North Carolina public school system to employ over $ 3,400,000 in facility upgrades across 11 schools and buildings with annual anticipated guaranteed savings of $ 301,260 annually. This project will enter the construction phase in July 2019 and verification resulting a cumulative anticipated savings of $ 5,419,898 annually.

Caldwell County Schools (Schneider Electric): $501,983 guaranteed annual energy and water savings. Guaranteed Energy Savings Performance Contract enabled this North Carolina public school system to employ over $6,420,000 in facility upgrades across 29 schools and buildings with annual anticipated guaranteed savings of $ 501,983 annually. This project will enter the construction phase in June 2019 and verification resulting a cumulative anticipated savings of $ 8,945,499 annually.

Hoke School Systems (Brady): Superintendent Freddie Williamson said the ESPC his district entered was the only way the school system could finance needed work without increasing taxes or debt. The $6.2 million in energy efficiency retrofits implemented as part of the 2015 ESPC are being paid for by guarantees of $8.1 million in energy savings over the 15 year contract. Click here for more case studies from Brady. Click here for a news article on Sandy Grove Elementary School.

Sandhills Community College (Pepco Energy Services): Energy conservation measures reduced energy consumption and energy-related operating costs at both the Moore and Hoke County campuses of the College. The project was financed through a $4.79 million tax-exempt equipment installment financing agreement for 19 years plus a one-year construction period. Click here for a news article on this case study.

Greensboro Coliseum Complex (Siemens): Through a series of facility improvement measures, Siemens reduced the electrical energy of the facility by nearly 25 percent, water consumption by nearly 30 percent and gas use by more than 50 percent. These improvement measures will result in energy reductions equivalent to three tons a year in CO2 emissions. Click here for more information on this case study.

Wilson County (TAC Energy Solutions): Wilson County reduced its utility costs by $107,000 annually after completing $900,000 in facility upgrades to improve comfort levels and operating efficiency at 10 county buildings. The county launched a second phase that addressed the Detention Center and a newly acquired office property for the Administration group. TAC projects that this $330,000 project will save the county an additional $29,000 annually. Today, the facilities staff uses the integrated EMS to carefully control energy usage at properties throughout the county. Employees now enjoy a more comfortable, energy-efficient workplace. And the county sets an excellent example of environmental concern by reducing its energy consumption.

Veterans Integrated Services Network (Ameresco): VA Mid-Atlantic Health Care Network (VISN 6) turned to energy savings performance contracting to cut its energy consumption by $1.5 million, but it reinvested those dollars into equipment that was reaching the end of its useful life. This enabled the hospitals to focus on their mission and passion to provide safe, efficient, effective, and compassionate care to the men and women they so proudly serve.

Swain County Schools (Schneider Electric): Swain County School District entered into a performance contract with Schneider Electric that allowed the school system to upgrade heavy mechanical systems and switch fuel sources to further save energy and costs. The $2,390,006 project was financed through a guaranteed energy services performance contract that yields $173,933 in average annual savings.

Quotes from NCBPA Members on HB330

“If North Carolina were to fully act on the policy, utility and workforce development opportunities available through our industry, the state would save $13.9 Billion in energy over the next ten years,” said Aaron Hope of Southern Energy Management. “With those energy savings, people would also be healthier, businesses would see increased productivity, we’d have healthier school environments for our children and there would be vast economic and environmental benefits as well,” said Hope.

“Legislators want to be helpful to their constituents and hear solutions directly from those impacted by the legislation they create,” said Eric Stabasefski of Cambium Contracting, Co-Chair of NCBPA’s Policy & Legislation Committee. “As building performance professionals, we need to have a presence here at the legislature and inform our representatives about what we need to be successful, which in our case, returns energy, water, health, environmental and many more benefits to citizens and businesses across the state,” said Stabasefski.

“Many state agencies and institutions have positively responded to Senator Janet Cowell’s original S668 2007-08 legislation to lower their energy usage, improve how their buildings perform and contribute taxpayer savings to the State budget,” said Tim Gasper of Siemens Industry. “This legislation mainly extends S668’s goals therefore allowing the state to benefit from many more years of improved health and safety for North Carolina citizens living and working in these buildings, improved productivity through more functional buildings and more efficient and less costly operations through reduced maintenance and upkeep,” said Gasper.

“Our summary message of ‘Energy Efficiency First’ is easy to understand and just makes sense,” said Ryan Miller, NCBPA’s Founder, CEO and Principal Lobbyist. “We’re not asking for money. We’re not asking for mandates. We’re forming innovative policy strategies that North Carolina can implement to achieve a 16.8% reduction in energy usage through short-term cost-effective projects and long-term strategies with buildings, which account for 65% of our state’s total energy usage. This bill is a big step towards our goal,” said Miller.

What is Performance Contracting?

Energy Services Performance Contracting (ESPC or performance contracting) is a funding method of using guaranteed energy savings to implement facility improvements, equipment upgrades and energy efficiency techniques. Municipal and state governments cope with tight budgets and pressure from citizens to keep taxes low. Schools, colleges and universities confront expanding enrollment and demands to improve academics. In each situation, facility managers and owners are often forced to defer maintenance and equipment upgrades in order to control costs. Performance contracting is an alternative project delivery method available to alleviate additional costs and help finance a project.

North Carolina General Statute § 143-64.17 Energy Savings Contracts and North Carolina Administrative Code Subchapter 41b – Guaranteed Energy Savings Contracts provide the basis for Energy Performance Contracts and the rules by which this type of business is conducted in North Carolina for both state and local governmental units (also referred to as “owner”). According to the statute, the State Energy Office, currently the DEQ USI staff, oversees parts of the process.

The major stages for the Energy Performance Contract include:

RFP: Request for Proposals

IGA: Investment Grade Audit

ESA: Energy Services Agreement

Construction Acceptance

Performance Period/Annual Reconciliation

Stakeholder Organizations

Utility Savings Initiative (USI): The Utility Savings Initiative (USI) is North Carolina’s lead-by-example program supporting energy efficiency in public buildings. The program was created to assist North Carolina governmental units manage the use and cost of energy, water and other utilities in their facilities. The program serves state agencies, the University of North Carolina system, the state’s community colleges, public schools, county and municipal governments. The effort includes oversight of the Performance Contracting process for governmental units.

Energy Services Coalition (ESC): The Energy Services Coalition (ESC) is a national nonprofit organization composed of a network of experts from a wide range of organizations working together at the state and local level to increase energy efficiency and building upgrades through energy savings performance contracting. Energy savings performance contracting enables building owners to use future energy savings to pay for up-front costs of energy-saving projects, eliminating the need to dip into capital budgets.

North Carolina ESC Chapter (NC ESC): The NC ESC Chapter is dedicated to providing an outreach program that provides information and education on performance contracting to the target audience within our state. Get involved in the North Carolina chapter to learn more about performance contracting, access to case studies, connected with ESCO companies in the state and more!

NAESCO (National Association of Energy Service Companies): The National Association of Energy Service Companies (NAESCO) celebrates 35 years of advancing the energy efficiency industry. NAESCO is the leading national trade organization representing and promoting the energy efficiency industry in the energy marketplace, the media, and the government both at the state and federal level; NAESCO serves as the voice for energy efficiency and performance contracting in state and federal regulatory and legislative activities. Energy Service Companies (ESCOs) contract with private and public sector energy users to provide cost-effective energy efficiency retrofits across a wide spectrum of client facilities, from college campuses to water treatment plants. Effectively utilizing a performance-based contract business model, ESCOs have implemented significant comprehensive energy efficiency retrofit projects over the last three decades. The latest Lawrence Berkeley National Laboratory Report estimates that ESCO investment in energy efficiency retrofit projects currently runs about $5 billion a year.